If you are like most people, you detest the daily rate that the car rental companies charge for their insurance coverage.
I wish to share a personal experience with you. The last time that I traveled and reserved a rental car online, a pop up appeared on the car rental website offering me insurance coverage. The rate was reasonable so I purchased full coverage. On the day of my arrival to my airport destination, when I finally reached the rental counter to sign the paperwork, I was asked if I wanted to purchase insurance coverage at an exorbitant rate. I smugly said that my reservation should show that I had already purchased rental car insurance and thus would decline coverage by the rental company. I was then informed that the insurance policy I had purchased online was not that of the rental car company and that should I be involved in an accident, the policy I had purchased may not cover all of the charges. At that point I wasn’t about to pay for two policies and declined the coverage offered at the rental counter. I also vowed that I was going to research whether relying upon my credit card coverage and personal auto policy would adequately cover me so I could reject this coverage in the future without any doubts if I was doing the right thing.
With respect to credit cards, we all have heard that if you decline coverage at the rental counter and use our credit card to pay for the rental, we have rental insurance coverage. That may be true when using most cards, but be aware of the limitations. First, not all cards provide rental car insurance. And with respect to those cards that have this benefit, there are two types of car rental insurance coverage . . . primary and secondary. You need to understand the difference between these two types of coverage. Most cards have secondary insurance coverage. Think of this type of coverage as backup insurance. If you are involved in an accident and your personal insurance policy does not pay for something, such as your deductible, the credit card company may reimburse you for this cost. If you are found responsible for damage to a third party’s vehicle, you may not be covered under some cards. Usually secondary credit cards do not provide you with insurance coverage that your personal auto policy did not cover. For example, if you dropped collision coverage on your auto policy, do not expect the secondary credit card company to reimburse you for such claims.
There are a limited number of credit cards on the market that provide primary coverage. If you are looking for car rental coverage using your credit card, it likely would make the most sense to find a card that offers primary car rental insurance. These cards usually have an annual fee, and some of these cards appear to have reasonably good coverage. Keep in mind that you need to carefully read the credit card’s company insurance coverage policy language, and that policy coverage can vary state by state.
I then researched what the primary coverage credit cards would not cover. To my surprise, there were two very significant items that the cards I looked at did not cover. The primary cards did not cover “diminished value.” “Diminished value” is the concept that when a car is involved in an accident, it loses value. It is best illustrated by assuming that you have two identical cars on the market for sale. One was involved in an accident and fully repaired, and the other car had never been involved in an accident. As a buyer of these vehicles, which car would you purchase? Since the cars are identical, you would likely purchase the car that had never been in an accident. Would you purchase the car that had been in an accident and repaired? You may, but not at the same value as the unblemished car. If the repaired car were sold at a lesser value, you may deem it a better value. That lesser value is the diminished value. When a rental car is involved in an accident, the rental car companies want to be reimbursed for the diminished value.
The second item not covered by most primary coverage credit cards is the loss of rental income. When the rental car is damaged, it may be out of commission and not available to rent to others. The car rental company will charge a daily rate for each day that the car cannot be rented and you as the renter of that car will be responsible for those charges. One would think that the car rental company would need to prove that its demand for rental cars exceeded its inventory to collect on this loss. However, when the credit card companies ask for such proof, the requests are generally denied. The reason given is that providing this information could wind up in the hands of its competitor rental car companies, and cause irreparable harm.
Wishing to be sure that I covered all bases, I spoke with my personal auto insurance agent to see if my auto policy would cover diminished value and loss of rental income on a rental car. I was basically told that such coverage would depend upon the facts and each situation would be different. In other words, I could not depend on such coverage. Furthermore, any difference of loss value between the rental company and my insurance policy would be my financial responsibility. In other words, if the car rental company and my auto insurer could not agree on the numbers (and that would be very likely), I would be responsible for the gap between what my auto insurance company would pay and what the rental company was billing me.
To add further insult to my most recent rental experience, I received a bill a couple of weeks later from the rental company for a couple of hundred dollars for damage to the car for some dings. Although I took photos of the rental car before I drove the car off the lot, I did not stop at the exit gate and have the attendant make note of those dings. Thus it was my word versus the rental car company’s word.
Another thought to keep in mind. When the rental car company sends you its bill, it will demand payment within a stipulated time period. Since you credit card or personal auto policy may take weeks to process your claim, you could wind up paying the rental car company up-front while your claim is being processed or risk having your credit record damaged for failure to remit payment when due.
Realizing that diminished value and loss of rental income (especially when there is no incentive to quickly repair the vehicle and put it back into service) could cost me literally thousands of dollars, and realizing that I will not receive a ding bill if I purchase the rental car company’s insurance coverage, I will now grimace when I agree to pay for this excessively expensive insurance coverage and focus on the peace of mind that comes with this charge.
I believe it was Jeff Foxworthy, the comedian, when asked about rental car employees who ask if he wants the additional insurance, who said “Yes, I would. ‘Cause you’ve got a Ford Fiesta that’s about to see more air time than a skateboard at the X-Games.”
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